Corporate law 4 questions needs tobe completed Pashu, 1 question from part A and 3 questions from part B. Please make sure that they are plagarism free. Thank you.
Liza Julie 89
Workofmyfriend.docxBULAW 5915 Corporate Law
FINAL online Test
Please read ALL of these instructions carefully before you commence:
Time to complete: 3 hours 40 minutes (220 minutes)
During the assessment:
· To add your answers to the assessment word document you will find a box under each question where it asks you to Click or tap here to enter text. Click on this box and begin typing your answers.
· You can leave Moodle at any time once you have downloaded your assessment, HOWEVER the clock will continue to count down (closing down your internet browser will save you bandwidth issues if your internet is not always reliable).
· If you leave Moodle at any time, you MUST return to the assessment area on Moodle and click on Continue the last attempt before the time runs out to upload your completed assessment document.
To complete & upload your assessment:
· Save the document to your desktop using Your Name_StudentID_CourseCode
· Return to the Moodle assessment area and click on Continue the last attempt button to return to the assessment.
· Scroll down to Question 1, and click on the paper icon to upload your completed assessment.
· Click Finish attempt and follow the final prompts to submit your assessment.
If you experience technical issues during your assessment, please don’t panic. Email your lecturer explaining the issue. It would be good to provide a screenshot with your email. The lecturer will get in contact with you as soon as possible to discuss how to proceed.
If you are unable to upload your completed assessment document before your time runs out, please email your lecturer with your assessment document attached and a clear explanation as to why you were late. Your lecturer will contact you to discuss.
All Federation University Australia rules apply to the alternative digital assessment task: penalties can be applied for late submissions and for breaches of academic integrity inclusive of collusion and/or plagiarism.
Test begins below
This online test consists of two parts, Part A and Part B. Part A contains one question that should be attempted. Part B consists of 5 questions of which you should attempt any THREE. All questions are worth equal marks (25 marks each). Where the question has more than one part, the allocation of marks is indicated.
Part A: This question is compulsory.
Question 1.
“’Corporate Governance’ is not a legal term. It describes the rules and practices put in place within a company to deal with the relationships between the board of directors, the management and the shareholders and other stakeholders.” Lipton, Herzberg and Welsh, 400.
“Good corporate governance will reassure shareholders and other stakeholders that their rights are protected and makes it possible for corporations to decrease the cost of capital and to facilitate their access to the capital market.” G20/OECD, 2015.
Required: With reference to the knowledge you have acquired during this course and from the completion of your assignment, discuss these statements. In your answer, refer to examples of poor corporate governance to illustrate your points. (25 marks)
Corporate governance is the set of rules, regulations and processes in an organization that involve share and stake holders, employees, and customer. A company’s board of directors is the primary person who influences the corporate governance. Corporate governance is the system by which companies are directed and controlled. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. The characteristics of good governance are participatory, consensus- oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follow the rule of law. The effective and entrepreneurial management of the company helps in achieving the long-term success of the company. It is found in the study that business ethics leads to better level of corporate governance. Governance ensures everyone in an organization follows appropriate and transparent decision-making processes and that the interests of all stakeholders (shareholders, managers, employees, suppliers, customers, among others) are protected. The purpose of corporate governance is to help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies. In today’s market-oriented economy and with the effects of globalization, the importance of corporate governance is growing. This is due to the fact of governance being an important way of ensuring transparency that makes sure the interests of all shareholders (big or small) are safeguarded. A good corporate governance ensures that the company considers the best interests of everyone, maintains the confidence level of investors and raise the capital effectively and efficiently, always have a positive impact on the price of shares as it improves the level of trust in the market, gives guidance to the owners and managers about the strategy of the company, reduces wastages, corruption, risks and mismanagement, helps in creating a strong brand reputation. Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it should be differentiated from the day to day operational management of the company by full-time executives. But good governance can have wider impacts to the non listed sector because it is generally about improving transparency and accountability within existing systems. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked. Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather, harmonizing. Corporate Governance is essential to develop added value to the stakeholders. Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights. Corporate Governance encourages a trustworthy, moral, as well as ethical environment. It lowers the capital cost. Talking about the corporate governance failures, it doesn’t happen overnight and there are several warning signs which a firm need to consider in order to avoid such failures. Some of the governance issues faced by the firms which eventually lead to corporate governance failures are – Ineffective governance mechanisms, for example, lack of board committees or committees consisting of few or a single member. Inadequately qualified members, for example, audit committee members not having appropriate accounting and financial qualifications or experience. Ignorance by regulators, auditors, analysts etc of the financial results and red flags. Corporate governance failures have resulted in massive problems faced by the companies over the years. An example of corporate governance failures is as follows: Enron: The Enron scandal, which broke out in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas. It was the largest bankruptcy reorganization in American history at that time. The primary reason for the failure of Enron was attributed to an audit failure. Nobody flaunted and flouted these rules and regulations! The board of directors turned a blind eye to open violation of the code. The auditors failed to prevent suspect and questionable accounting. The auditors did not even examine the SPE transactions.
Part B: Answer any THREE questions. If you attempt more than three, only your first three answers will be marked.
Question 1
This question has two parts. Both should be attempted.
a. One of the major advantages often identified for a company is limitation of liability. With reference to this concept, describe its meaning and scope (4 marks), and explain two situations in which such limitation of liability may be negated. (6 marks)
A company is an artificial entity recognised by the law as a legal person with its rights and liabilities. Company is a separate entity distinct from its shareholders, directors, office and employees. Company has many characteristics such as, limited liability, separate legal entity, It has different rights and liabilities; it has power to sue or to be sued in its own name and many more. Among them the most popular characteristics is limited liability. Business enterprises with limited liability are a feature of developed legal system. Limited liability is applied in the corporate form which is advantage of it over the other forms of the business organizations. Its existence is necessary for the functioning of stock exchange. The meaning of the limited liability is that shareholders are not personally liable for their company’s debts. The liability of the shareholders differs from the types of a company. Like in the partnership or in a sole traders’ shareholders are not liable to pay the debt of the company from their personal property. The limited liability is also associated with the other characteristics of the company i.e. separate legal entity. Separate legal entity defines that company has right to keep its property in its name, so the shareholders are not liable for the debt of the company. Limited liability is always not appreciated there are some part where it is neglected such as, in case of closely held companies, contract creditors. Limited liability and closely held company: the application of the limited liability is problematic in the closely held company. Tort creditors of corporate groups may be adversely affected where a parent company seeks to limit liability to a subsidiary which may be under capitalised and so unable to fully meet its liabilities to tort creditors. Limited liability also enables shareholders of closely held companies to avoid liability to creditors by putting the company into liquidation and then conducting the company’s business through a new company described as a ‘phoenix’ company. Application of limited liability is not applicable in closely held companies and subsidiaries as these companies registered as proprietary companies, have small number of the shareholders. Contract creditors: the impact of the limited liability on creditors depends on the type of creditors. The risks in dealing with limited liability companies are often overcome by creditors such as banks and other financial institutions. Since, such lenders usually have strong bargaining power they generally will not lend money to limited liability entities unless they receive adequate security for their loans. Every creditor wish to lend their money in the field where it is secure as no one wants to take risk for their property. Limited liability companies will cover the debt of the company from the property, lending and the income of the company but not from their personal income. So, contract creditors feel problematic to invest their money in the limited liability company.
b. Anakin, Daala and Leia are the shareholders (in equal shares) and directors of Empire Pty Ltd, a property development company. The company does not have a constitution. Recently, board meetings have become difficult. Every time they disagree on any proposal, Leia claims that Anakin “persuades” vendors of land to lower their prices and that Daala and her team use sub-standard materials in construction while charging premium prices to purchasers. Both deny these allegations for which Leia has never produced any evidence. The tension in the meetings finally gets too much for Leia and she resigns as director. The others then want Leia to sell her shares to them in exchange for the return of her financial contribution to the establishment costs of the company.
Leia refuses, announcing her intention to remain a shareholder and do all she can to increase public awareness of problems with the company and its management.
Required: EITHER advise Anakin and Daala what they can and cannot do if they want to remove Leia as shareholder, OR advise Leia if she wants to prevent Anakin and Daala removing her as shareholder. (15 marks)
Remember to give reasons and refer to legislation and cases, where relevant, in your answer.
issues: In the above case Anakin, Daala and Leia are the shareholders who are equal contributor to the share of the company, and they are directors of the company at the same time. During the processing of the company, they got conflict and become difficult to handle situation. They are conducting the construction company, they take order from the client to build the house all the time. But the issue raised in the above case is Leia has claimed that the activities of the other two shareholders are unethical and she is not agree with it. She claim that Anakin always Persuades the vendor of the land to lower the price and that Daala and her team use sub-standard materials in construction, but both of the shareholders are not ready to accept the allegation that Leia made against them because Leia never provide evidence against them. Now Leia wan to stay as a shareholder but other two shareholders want to remove her from the shareholder. Rules: As per the rule in order to change the shareholder and the remuneration of the shareholders there most be 50% of voting majority which the other two directors can hold. But they don’t only have the power, but Leia also have power to claim against both of the shareholders for the breaching of the directors duty. Being a directors it is their duty to act on good faith and loyalty, act in the best interest of the company, act for proper purpose, misuse of position, misuse of corporate property, personal interest emphasizing, conflict of interest of the company and shareholders. Application: Both of the shareholders can approve their combine vote to take out Leis from the director, but they can be claimed for various reason. We can see that in the above case they are acting for the best interest of them self rather than that of company and the customer. They just want to earn profit without giving the appropriate result to the customer. They tried to misuse their position and take out the shareholder Leis who is director of the company as well when she tried to raise the voice against their conduct. They have beached the duty of loyalty and good faith. Being the director of the company, they should be able to work on good interest of the company and customer keeping personal interest a side. And it is also clearly mentioned that company does not have constitution. Lies can claim to form the replaceable rule as it is the internal matter of the organization. Conclusion: Therefore, there is some reason that Daala and Anakin do against the Lies but Lies have many reasons to stay the director of the company unless she wants to get out of the position herself.
Question 2
Albert and Tom develop a vehicle able to be driven across-country and be converted into a motor boat. They call this vehicle “The Dreamboat”. On the recommendation of their friend Marie (who is appointed by them as a third director), they set up a new company, Dreamboat Ltd, to sell them. To obtain premises and machinery, Dreamboat Ltd borrows $1 million from Big Bank. Albert and Tom have only built two vehicles as yet and there are a few issues to resolve (like the fact they have not yet worked out how to convert the Dreamboat from a boat back to a car). Postings by Albert on Facebook have attracted interest in the concept from dealers and tourist operators although none have ordered any vehicles. Albert and Tom believe the best way to get orders is to produce some Dreamboats for display and thus generate consumer demand. To do this, they need more money. Being innovative and creative, they decide to appeal directly to potential investors by showing them exactly what they will be supporting. Albert and Tom embark on a tour of the country, holding demonstrations of the vehicle at local investment fairs. To ensure interest in their demonstrations, they send out personal invitations to all those registered to attend these fairs and invite them to apply for tickets to attend “this special event”. Spectators are invited to invest in $1000 blocks in the company and, should they either provide money or promise to do so, are handed a document headed “Our Offer to You” (with space for the recipient’s name) that describes the company, what the money is to be used for (to build 5,000 vehicles in the first year), projected sales (at least 3,000 in the first year and 5,000 in the second) and how the money will be repaid (10% per year over 12 years, a sum that includes a return on investment). There is no mention of any issues with the vehicles or the fact none have yet been sold. Further, it states that if the recipient completes, signs and returns the form on the last page (which contains the commitment to invest) and ticks the box at the bottom, Dreamboat will give them shares worth $1500 each. About 30 eager would-be investors are very impressed and Albert and Tom collect $100,000 in cash and another $100,000 in pledges by the end of 4 weeks. They plan to use the cash to pay off their credit cards (that they had used to pay for their travel and accommodation on the tour) and put the rest in the bank for later.
At the last venue, Lee, an accountant, approached them, asking whether they had complied with the disclosure rules under the Corporations Act 2001. Albert and Tom look blank.
Required: Advise Albert and Tom whether Chapter 6D of the Corporations Act 2001 applies, (9 marks) whether what they are doing does or does not comply, (8 marks) and the potential consequences should they not comply. (8 marks) If you believe they do NOT need to comply with any or all of this part of the Act, justify your position.
Remember to give reasons and refer to legislation and cases, where relevant, in your answer.
ISSUE-: The issue in this case is that whether chapter 6D of the corporation act is applied on Albert and Tom, whether they are comply with the 6D chapter of the corporation act or not, and if they do not comply with this chapter then what consequences will they face. RULE-: To offer securities to the investors, a company required preparing a disclosure document such as prospectus which contains all the required information which is needed by investor to make a sound decision and it should not contain any misleading and deceptive information. The disclosure document should be lodge with ASIC also. The corporation act requires in certain circumstance to make a disclosure to investors. The fundraising provisions are applied to the public companies which make offers. It may also apply to the proprietary company who engage in the activity which requires disclosure under chapter 6D. The act set out different disclosure rules for primary trading and secondary trading. Under s 706 an offer of securities require disclosure made to the investors unless they covered under s 708 and 708AA exemption. Under s 727(1), a person is prohibited to making an offer of securities and distribution of application form that need disclosure unless a disclosure document is filed with ASIC and s 727(2) requires the offer of securities that need disclosure to investor should be included in appropriate disclosure document. Section 726 of the act also impose same prohibition against a offering of securities of a body which is not formed or come in existence or does not exit. The company is proposed to form or incorporated is also cover under this section 726. The contravention of the section 726 and 727 is treated as a criminal offence which has punishment of a fine of 200 penalty units and 5 years of imprisonment or both under s 1311 and sech 3. APPLICATION-: In the above case, chapter 6D of the corporation act is applied on Albert and Tom because the company “Dreamboat” is not yet come into existence. They still do not know how to convert dreamboat to the motor boat and there is no sale of any dreamboat. They cover under section 726 of the corporation act. Albert and Tom does not comply with the chapter 6D under corporation act as Dreamboat ltd company does not come into existence yet because of which they need to issue a disclosure document by providing them full information about the facts. They do not issue any prospectus to the investors as they invite them through local investment fair by inviting them personally where they provide them a document headed “our offer to you”. They does not disclose any fact and information about the vehicle that no vehicle is yet sold and they also need to convert the vehicle in the motor boat. Without disclosing the proper information to the investors they raise funds which mean they contravene the corporation act. The future consequences of not comply with chapter 6D of the corporation act is 5 year of imprisonment to the Albert and Tom and 200 penalty units fine would be given by the Albert and Tom. CONCLUSION-: In conclusion, chapter 6D is applied to the above case but Albert and Tom does not apply with the provision of chapter 6D of the corporation act hence they are liable for penalty to contravene the act.
Question 3
Green Savings Pty Ltd. makes mini solar panels. It also tenders to provide environmental solutions for large development sites such as new supermarkets and shopping plazas. Green Savings was formed out of the partnership of three sisters with different skills. Annie is an accountant, Beverley is the ‘creative brains’ and Cindy the ‘hands-on’ operational person. These three are named as the members of the board of directors. Their mother Dixie helps them out as well as she has a lot of business experience.
Beverley proposes the company tender to provide solar panels for the World Solar Powered Car Racing Competition in Darwin. Annie advises against the venture but Beverley, Cindy and Dixie support a motion that the company will make a bid. Annie resigns from the Board in protest. Dixie does most of the work on costing the tender and they are all delighted when Green Savings wins it.
Since Annie is not there to help with the financial side of the business, Beverley and Cindy decide to hire a ‘manager’ to ‘do the books’ and generally advise them on the accounting side of the business. Sam, a friend of a friend and a recent Bachelor of Commerce graduate, has been looking for work for some time. They hire him. As the bills come in and the bank balance falls, Sam becomes concerned but thinks that Beverley and Cindy, being experienced in business, know what they are doing. There certainly is a lot of activity and he knows the company is being paid by the Northern Territory Government for the design and supply of the solar panels.
Beverley and Cindy presume Sam will tell them if they are running out of money. When asked by suppliers when they are going to be paid, Cindy just tells them to ‘see Sam – he is in charge of that sort of thing’.
Green Savings completes the project on time and is paid by the NT Government but when Beverley and Cindy finally have time to look at the company’s position they are horrified to find out that they still have unpaid accounts of $300,000 relating to materials and specialist services obtained for the project. It seems their tender was underpriced. They are late paying interest on the loan the company took out to cover the purchase of some of the raw materials for the panels and the bank, a secured creditor, is threatening to take action if this happens again. Several unsecured creditors have written to Beverley explaining they are concerned that Green Savings is insolvent. Beverley has been so busy she has only just opened these letters.
Required:
Discuss whether Annie, Beverley, Cindy and/or Dixie are in breach of their insolvent trading duties, (8 marks) what the consequences might be if they are, (9 marks) and what they should do now. (8 marks)
Remember to give reasons and refer to legislation and cases, where relevant, in your answer
Annie
Question 4
This question has two parts. Both should be attempted.
a. The court may seek to attribute the acts of individuals and groups to the company. Name and explain the theory that has been developed to justify such attribution (5 marks) and identify where it may be applied. (5 marks)
Click or tap here to enter text.
b. Krazy Kars Pty Ltd (Krazy Kars) equips and sells customised off-road vehicles to operators in the tourist industry. The directors are Carlos, Possum and Michele. According to its constitution, although Michele as the only full-time director routinely arranges day-to-day purchases and services, any contract worth more than $100,000 between the company and any other party must be approved by a majority of the directors. With changes to the market, the company’s profitability is declining and the directors agree the business should diversify. Michele volunteers to explore options while she is touring Australia on her winter holidays and to come back with ideas to present to Carlos and Possum at the next directors’ meeting. The other two agree. When Michele arrives in Darwin she attends a car show and is fascinated by mini rally cars displayed at the MRC Pty Ltd stall. Sebastian, who owns MRC Pty Ltd, tells her that MRC is a new tourism enterprise and that he is looking for businesses able to construct and repair such cars. Michele hands Sebastian her business card that describes her position as “Managing Director” for Krazy Kars. Michele sees a real opportunity for Krazy Kars to get involved and, after Sebastian tells her there are lots of interested parties, immediately lets him know Krazy Kars can construct and supply 200 mini rally cars over the next calendar year. She signs a contract as “Managing Director of Krazy Kars” that commits Krazy Kars to provide those cars at a price “covering the cost of manufacturing plus 10%”.
On Michele’s return to the office she calls the other directors together to tell them the good news. To her disappointment, Carlos and Possum conclude that Krazy Kars is unable to meet these targets and that Michele had no right to make such commitments. They pass a motion (over Michele’s objections) that Sebastian should be told that Krazy Kars will not be providing the vehicles. When Sebastian finds out, he demands that Krazy Kars honours the contract Michele signed.
Required: EITHER advise Sebastian as to whether (and why) Krazy Kars IS bound by the contract OR advise Carlos and Possum as to whether (and why) Krazy Kars is NOT bound by the contract. (15 marks)
Remember to give reasons and refer to legislation and cases, where relevant, in your answer
Click or tap here to enter text.
Question 5
After a well-publicised fraud committed by one of its ex-managers, Giacco is appointed by Barnhouse and Co Ltd on 30 August 2020 to sort out its affairs and to determine its financial health. He is asked to advise the directors of Barnhouse of their options to decide on the future direction of the company once he has carried out his investigations. He discovers the following:
· Barnhouse owes around $200,000 to three trade creditors. Since 15 August, Wells Ltd has been sending emails every day threatening to go to the media if it is not paid the $40,000 it is owed.
· Barnhouse’s cash reserves and accounts receivable amount to some $20,000.
· Holm Bank Ltd holds a security interest in the building Barnhouse owns and occupies as well as in the machinery used for production. Barnhouse owes Holm Bank $300,000. Holm Bank holds a mortgage over the building and the machinery. In 2014 the building was valued at $500,000. It would cost more to remove the machinery for sale than any price it would fetch.
· Barnhouse has three employees. They are owed $6000 each in wages/salary and entitlements that have remained unpaid since June 30 2020. Peacock has claimed $4000 for travel expenses. Axford, a manager, also holds 10% of the shares in Barnhouse and Co and is owed a performance bonus of $7000 from the 2019-20 financial year.
· Wilden Pty Ltd, currently owed $5,000, has a circulating security interest over all stock held by Barnhouse. This security interest was granted in July 2020 when Wilden Pty agreed to supply raw materials on 40 day credit terms to Barnhouse for the next 5 years.
Required: Should Giacco recommend that the company be put under the control of an external administrator? By reference to Giacco’s findings, explain and justify your answer. (15 marks) Describe the implications for the company, directors, creditors and members of such a move. (10 marks)
Remember to give reasons and refer to legislation and cases, where relevant, in your answer
Issue: Barbrnhouse and co Ltd appointed Giacco to sort out its affairs and determine the financial health of the company because of the fraud activities done by the previous manager. By analysing the activities of the organization Giacco recommend the organization to put the external administrator. Rule: Giacco find Barnhouse has three trade creditors and since 15 august 201 walls ltd has been send email daily to go for social media if they are not paid it. it has less cash reserve and it has bank loan of $300000 and other expenses also so that company is in the position of Insolvancy. Insulvancy is the common reason for the company to move into external administration. In this case company can appopint the Voluntary administration. External administraion is introduce by corporate law reform Act 1992 following the recommendation of the austtalian law reforms commisions's general insovancy inuiry held in the 1980. Volunatry administation is the External administration provide more flexiable and less expensive administrator. It helps companies at the time of financial trouble to provide proposal to the creditors, maximize returns to the creditors and also maximized the chance of company being able to continue business. Section 435A sets out the goals of administration: such as maximize chance of company continue in business and provide a mechanism for creditors and member to get a better return tha from a winding up. Application: By analysing the Barnhouse overall financial position Giacco decision of appointing external administrator is good in this case. Because Barnhouse has to pay to their creditors, bank loan and other so that if they are able to appoint the external administrator they can pay loan and may continue their business in after paying debts and credit. Giacco a new manager can run company in the better way. Appointing the external administration can Conclusion: In conclusion Giacco decision to appoint an external administrator is the best decision so that organization can pay its creditors and bank loan also. They can run their business later after paying debt. Implication for company, directors, and members When the company is facing the financial problems, the directors, creditors of the company refers to put it under the control of external administrator either voluntarily or involuntarily. An administrator plays a vital role is to save the business and continue it or to give maximum return to the creditors and members. They review company’s finances, other available options and set up a plan to bring back the position of the business. But it has some implications on the directors, creditors and members of the company. The property and the business of the company is all controlled fully by an administrator. The matter and affairs of the company are settled by them. Whether the business will continue or goes for liquidation, it totally depends upon the administrator. Talking about the directors, all their powers including the powers of officers get suspended until further notice by the administrator. Directors are obliged to give full assistance to the administrator in the investigation process. All the information and documents provided by the directors should be true and correct. Similarly, unsecured creditors are unable to continue their any plans and actions they have planned for until and unless an administrator or court give permission. They might not be able to receive the payment for any claim. In the same way, secured creditors are unable to enforce charge over the property of the company. Meanwhile shareholders also cannot claim for ownership or interest and even transfer of shares or change of status is ineffective.
END OF TEST
